Four Key Insights For Funders Attempting to Shift Towards Unrestricted Funding
by Caitlan Cole
Note: While this blog post focuses on unrestricted funding, this is one of six interconnected grantmaking practices that are part of a trust-based approach. The following insights and recommendations can also be applied when making trust-based changes of any kind; visit the TBP Overview to learn more on cultivating a holistic approach to trust-based philanthropy across organizational cultures, structures, leadership, and practices.
In our work to collectively build a healthier, more equitable philanthropic sector, one lever of change that is worth closer consideration is flexible funding. For funders, unrestricted funding is one of the strongest, surest gestures of trust you can extend to your partners, a tangible acknowledgement of their expertise, vision, and self-determination. For nonprofits, this flexible funding is a sigh of relief; it means more space to focus on the work rather than the funding of the work, the ability to respond nimbly to emergent needs, and the freedom to fill in gaps for indirect costs, without which there can be no direct work.
A recent report from our colleagues at the UK-based Institute for Voluntary Action Research (IVAR) calls unrestricted grants the “holy grail of funding,” and reveals that funders who adopt this practice “do a better job as funders and support[s] better outcomes for the causes and communities they care about.”
Yet despite the benefits to both funders and nonprofits, this practice is far from the norm. Research from the Center for Effective Philanthropy (CEP) calls attention to the troubling misalignment between foundations’ stated attitudes and their actual grantmaking. While CEP’s study found that most foundation CEOs agree on the effectiveness of unrestricted funding and are in favor of increasing this type of support, most foundations provide minimal, if any, unrestricted funds. The CEP report found that only 21% of grants made in the decade before COVID were unrestricted, and even then, these unrestricted funds are often granted to only a handful of the grantees in the organization’s portfolio.
The reality is that for many funders, making this shift feels out of reach because both the ethos and practice of unrestricted funding disrupt many of the conventional beliefs philanthropy holds about compliance, risk, metrics, and accountability. For foundation staff working on making the case for unrestricted funding, this can feel like an impossible hurdle at times. But the report from IVAR reveals four key insights that can help light the path for foundation staff working to shift to more flexible funding:
1. Offer Your Board the Opportunity to Embrace Change
While some boards may be slow to adopt change, the IVAR report reminds us it’s also possible that your board could surprise you:
Perceptions of ‘what the board wants’ exercise a powerful influence on staff confidence to critique established ways of doing things and test out new ideas and approaches. Without clear messages and explicit direction, grants managers may default to an unnecessarily risk-averse position . . . imposing restrictions to mitigate risk which trustees would be happy to accept.
Suggested Action: Take time to reflect on the assumptions you may hold about your board’s attitudes toward change. Have these assumptions kept you from introducing the topic of unrestricted funding or other tenets of trust-based philanthropy? Consider sharing the IVAR report with trustees or referencing examples of peer grantmakers that have unrestricted their dollars. Before defaulting to the status quo, show trustees what is possible and offer them a chance to set a new course.
2. Focus on Contribution over Attribution
In the transactional model of philanthropy that prevails, grants are extended on the following premise: “Grant X dollars to Y nonprofit to address Z issue and achieve A, B, C D, E, F, and G outcomes.” In other words, we often see philanthropy as a straightforward equation of inputs and outputs, assuming a causal relationship between investment and outcomes. Yet, if we seek to support real change across social, environmental, political and economic issues, it’s crucial that we accept the fact that this work is complex, incremental, messy, unpredictable, and anything but straightforward.
Rather than restricting funding to specific programs with the expectation of specific outcome metrics, it is far more effective to invest flexible dollars in organizations committed to addressing these issues and then learning together about what is working and what’s not. This means reframing your foundation’s approach to funding in terms of contribution rather than attribution — your organization’s efforts are one piece of a complex, dynamic system constantly working for and against the changes we seek — and attempting to conclusively link your funding to a specific outcome is reductive, harmful, and likely impossible. As one funder quoted in the report put it, “We need to see ourselves in the long run as investors rather than purchasers of outcomes.”
Suggested Action: Brainstorm as a staff what it might be like to frame your foundation’s impact in terms of contributing to a larger picture of progress, rather than pursuing discrete, attributable outcomes that put undue pressure on nonprofits and narrow your outlook on change. Dig deeper into this topic by watching this webinar on trust-based learning and evaluation co-hosted by the Trust-Based Philanthropy Project and the Center for Evaluation Innovation.
3. Get Curious About Definitions of Risk
While unrestricted support may feel like a risky proposition to some funders, IVAR reports that most of the foundations that have adopted this approach find that it has been a “balanced risk” or even a reduced risk. Funders in the report point out that by doing the homework before partnering with organizations, risk can be replaced with trust: “If we can determine that an organisation can operate and the work is relevant to the people that they're supporting, we should trust them to do it.” Trust — who is trusted and who is not — is intrinsically bound up with our perceptions of risk, and it is worth unpacking why we may feel some organizations or leaders are riskier than others.
Suggested Action: Rather than thinking about the potential risks unrestricted, flexible funding might pose to your foundation, begin by thinking about the risks from a nonprofit leader’s point of view: what risks are they taking by entering into a funding relationship with you? What are the risks to the nonprofit and the community it serves if you do not fund them? It is also crucial to bring an equity lens to this reflection, and it’s worth considering how your organization may be inadvertently reinforcing inequities by not checking for implicit biases.
4. Lean on Values to Show You The Way Forward
For any funder curious about the transition to unrestricted funding, the full report is a must-read. Perhaps the takeaway most resonant with trust-based philanthropy is that unrestricted funding is an exercise in leading with values. As the funders interviewed in the report remind us, you will not have all the answers when you first decide to make this change. Rather than looking for all the reasons why your foundation can’t give unrestricted funding or what might happen if you do, why not start with a mindset of “How can we get this done?” If your organization has taken the time to articulate your core values or reexamine them through a trust-based lens, the groundwork has already been laid for you — the task now is to bring your processes into closer alignment with those values.
Suggested Action: Consider how you would approach your grantmaking differently if what you were most accountable to was upholding your organization’s values. What changes would need to be made? Our colleagues at IVAR sum it up well: however far along the journey you are, it is worth asking: can we go further in offering unrestricted funding?
Caitlan Cole is the Collaboration Coordinator at the Trust-Based Philanthropy Project.